The California real estate market is, and always has been, truly different and unique from other major national marketplaces. That trend has continued despite unprecedented factors associated with the global pandemic that has turned the entire industry on its head. Average home values skyrocketed during 2021 and have continued to increase in early 2022. Home equity positions have grown despite scores of analysts having predicted the exact opposite scenario, and demand for available housing options is growing more robust by the day.
Inventory – or the lack thereof – is the primary driver of California real estate scene; the effects of the pandemic have made new ground-up construction prohibitively expensive
The significant shortage in viable housing units is the main culprit behind the surging home prices—and inventory has only gotten worse during the pandemic. This is mainly due to the logistical challenges and increased cost and complexity of new construction. COVID-19 hit the construction industry hard, bringing the development of new housing complexes to a virtual standstill for months on end. Lingering supply chain issues, coupled with a hike in labor costs (from the shortage of construction workers), have only exacerbated the issue, making it prohibitively expensive for builders to break ground on new housing projects.
Property values will continue to climb until sufficient inventory is fully integrated into the market, which could take several years. In the interim, seasoned real estate investors have begun leveraging long-term exit strategies, such as diversifying their rental portfolios with the addition of more multifamily property assets. Their logic is sound, market factors linked to ongoing pandemic concerns make buy-and-hold approaches a more sustainable option at the moment than other shorter-term investment moves.
Because of extremely elevated home prices, more Californians than ever are renting
Due to a longstanding level of substantial demand – California’s metropolitan areas offer its residents high paying jobs and career advancement – and a chronic inventory shortage, home prices will continue to remain high. With some values ramping up by more than 30% in the last year alone, that dynamic appears to not be going anywhere for the foreseeable future. Subsequently, the average home value for California comes in at a hefty $819,630 based on a recent report by the California Realtors Association. While geopolitical events and the Fed response to inflation could create short term fluctuation, real estate prices appear to be retaining value for the long-term.
Climbing home values are dissuading many would-be homebuyers from committing to a purchase—or, at the very least, forcing them to temporarily put their plans to buy on hold. That means that there is a significant contingent of the population that are wanting to buy but don’t have the finances to do so, which is subsequently creating an almost identical supply and demand issue for potential buyers and tenants alike. Because more Californians are turning to rentals, both single- and multi-family options, there are fewer available options. Landlords therefore have enhanced leverage when it comes to setting rental fees—which is a distinct opportunity to maximize cash flow.
Based on data from Apartment List, the average monthly rental price in California is $1,861. Broken down based on property size, median rents are as follows:
• Studio: $1,377
• 1 Bed: $1,556
• 2 Bed: $1,891
• 3 Bed: $2,226
• 4 Bed: $2,639
Those are definitely very healthy rental rates. For investors looking to tap into this market trend by investing in multi-family properties, check out the following pros of this dynamic asset class:
• Consistent cash-flow
• Low risk profile
• Easily Scalable
• Tax Benefits
Get Started Today!
Ready to take advantage of a real estate market that is primed for multi-family investments? Security Financial Services (SFS) is an established real estate private money lender that has been assisting successful California investors for decades. Contact us today to learn more about how SFS can get you the money you need for your next investment in a fraction of the time it takes conventional lenders.